The VAT argument has some weight behind it.

Unfortunately, it was buried amongst an avalanche worth of self-serving, disingenuous bullshit about forks in the road and up-front cuts.

Promise of Britain, my eye.

Thanks for this, Duncan – much-needed mastery of the details. But my concern, which is a different remit, is still that there has to be more attention paid to how Labour actually sells this to the public.

If I had the economic chops to come up with it, I’d like to see Balls use one sound, comprehensible argument to dissolve the “we have to tighten our belts, like when you’ve spent too much on the shopping” populist rubbish emanating from the Coalition.

Comparing the deficit to a mortgage wouldn’t quite cover it, but something similar is the only way Labour is going to make its proposals fly.

Is Balls remembering history from that far back when he talks of a “fork in the road”?

That was part of Adlai Stevenson’s now legendary “Nixonland” speech. It was wheeled out again as Tricky Dicky hit the rocks, to show how prescient Stevenson had been on the character of Nixon.

I’m with Yogi Berra. When you come to a fork in the road – take it!

@ 4 Tim J

So that makes you Boo Boo then….?

Normally temporary tax cuts do not work. However, in an economy with borrowing constrained consumers a consumption tax cut even though temporary would probably be effective. I would go further and reduce VAT to 15%. It is quite bizarre to listen to people who normally argue that tax cuts pay for themselves arguing against tax cuts. Some of the benefit would leak abroad, however, the cut would help to raise confidence.

The VAT rise to 20% was never about deficit reduction and always about funding a tax giveaway before the next election. Some would call it a bribe. What the government never banked on was their growth projections turning out to be too optimistic. Therefore, if they can’t achieve their growth figures in the 2010/15 period, they will not hit their deficit reduction plans and a tax giveaway before the next election will look blatantly like bribing the electorate with their own money.

The government boxed themselves so much into a corner with the deficit that a cut now would appear a panicked response. Although, that should not bother them as they are gaining a reputation of a government that U-turns at the first sign of trouble with their policies.

A VAT cut does not really fit with their desire for an economy less dependent on consumer spending and more export-led growth. Cuts in national insurance might be a policy that they may consider. I would go for both to get the economy growing and capital investment to get the potholes fixed on the roads.

Yes, lower the VAT, so that I can buy more imports or go on holiday abroad.

Seriously, the main problem I see with a decrease in VAT is that industry and retailers rarely pass the rate cut on and rather pocket the difference. They know I have enough money to buy bread, milk and a bus ticket now, so why would they give it to me cheaper?

Andreas @ 7
Neither Bread, Milk or Bus tickets attract VAT. SO I would imagine your spending on these items wouldnt change if there was one.

“The VAT argument has some weight behind it.”

It does? How many time is Balls proposing it be lowered?

Actually, scratch/modify that comment.

I don’t think the argument that VAT will lower inflation has much merit, even if it will appear as such in conventional indices. That would be putting the cart before the horse.

The proposals made by Ed Balls are sound, rational, common sense. A temporary bandage for a gaping wound perhaps, but far more effective than the pointless 1p cut in fuel duty, the pointless Osbornes’ pathetic attempt at slight of hand. Under a Labour government, with Balls as chancellor, the proposal would be excellent. Under the coalition, it would simply be a little bit of help and protection, against a disastrous economic strategy, devised by a man who dropped out of studying economics because he found it ‘A little complicated’. It’s rather like making the yorkshire ripper minister for women. He hates them, wants to hurt them and blames them for his situation. Osborne hates the poor, the low earners and those who require extra help at extra cost, wants to punish them for their misfortune and blames them for being a drain on the national purse. So Cameron made him responsible for the economic well being of us all. Is Cameron really that stupid? No. A right bastard, certainly, but not stupid. He appointed his chum, Gideon as chancellor, knowing that they shared the same right wing dislike of the great unwashed. However, if the heat gets to much for Cameron, he can always ditch his chum, replace him with another chum and continue to survive by hiding behind his minions.

11 – Brings a Hugo rifkind article to mind.

It’s the hate. It’s a handicap. It makes you nuts.

http://www.spectator.co.uk/columnists/all/5911903/part_2/i-could-never-be-comfortable-on-the-left-theres-just-too-much-hate-there.thtml

OP, Duncan Weldon: “Combined with the fiscally neutral package of using a bonus tax of around £2bn to fund house building [and more]…”

I don’t think that government should play around with incentives for house building until government has coherent policies for housing, planning and land taxation.

A headline VAT cut would not impact any autonomous expenditure one little bit.

Most of our inflation is coming from food prices which is zero-rated for VAT. Then there is the rise in energy bills.

All a cut in the headline rate of VAT would do is make discretionary spending cheaper; which is not where the ‘inflation’ is as these goods are mostly price-stable.

Our inflation is coming from Sterling’s decline against a basket of currencies making imported goods more expensive namely fuels and foodstuffs.

If inflation is your target then Sterling needs to be bolstered by marking interest rates up by at least 1.5% to reduce the level of imported inflation. There is no over-production as you point out. Also, you advocate a VAT cut on discretionary spending and then wallop discretionary spending with a bonus tax. A very confused message.

If anything is required, cut energy taxes, either remove VAT from electricity and gas prices to benefit everyone, not change the headline rate of 20% VAT.